Between the Hedges

Portfolio Manager's commentary on investing and trading in the U.S. financial markets

Bloomberg:

- The unemployment rate in the U.S. soared to a 26-year high of 10.2 percent in October and employers cut more jobs than forecast. Payrolls fell by 190,000 workers last month, compared with a 175,000 drop anticipated by the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. The jobless rate gained from 9.8 percent in September and exceeded 10 percent for the first time since 1983. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- reached a record 17.5 percent from 17 percent in September. Temporary workers rose by 34,000, the third consecutive gain. Neal Soss, chief economist at Credit Suisse in New York, is among those saying the gain is a harbinger of increases in overall employment. Payrolls at temporary-help agencies often turn up before total employment because companies are not certain increases in demand will be sustainable enough to warrant the expense of taking on permanent staff. President Barack Obama in February signed into law a $787 billion stimulus package aimed at reviving growth and stemming job losses.

- Barclays Plc and Nomura Holdings Inc., which never ranked among the top 10 merger advisers worldwide in the past decade, are luring hundreds of bankers as competitors cut jobs and cap bonuses under government pressure. The banks are expanding globally after they bought parts of Lehman Brothers Holdings Inc. out of bankruptcy last year. Barclays, which acquired Lehman’s U.S. unit, plans to hire more than 30 bankers in Europe for its mergers advisory business and has hired about 750 people for European and Asian equities this year. Nomura, which bought Lehman’s European arm, has increased its U.S. workforce by about 36 percent since March and this week hired former Goldman Sachs Group Inc. currency strategist Jens Nordvig, 35.

- Starbucks Corp.(SBUX) Chief Executive Officer Howard Schultz is shifting the coffee seller’s focus from cost cutting to growth by promoting new products, including Via instant coffee and its Seattle’s Best Coffee brand. “The future of the company is not based on cost takeouts,” Schultz said in a telephone interview late yesterday. “It’s based on innovation and the emotional connection and trust we have with our customers.”

- Futures traders are pushing back bets for when the Federal Reserve will begin to increase interest rates from record lows after the U.S. unemployment rate surged to a 26-year high of 10.2 percent. Fed-funds futures contracts, which traded on the Chicago Board of Trade, show traders expect a 52.6 percent probability the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by June from its current range of zero to 0.25 percent. That’s down from 57.1 percent odds yesterday. Implied yields on Eurodollar futures, which are based on expectations for the three-month dollar London interbank offered rate and also used to bet on the direction of central bank rates, slid. “Futures traders are pushing back expectations for the Fed’s tightening,” said Michael Marzano, senior vice president of interest-rate futures trading at Prudential-Bache Commodities in Chicago.

- American International Group Inc.(AIG), the insurer bailed out by the U.S., posted its second straight profit as investment losses narrowed and catastrophe costs declined. “Even with the profit, AIG’s still a sick company,” said Robert Haines, an analyst at CreditSights Inc. in New York. “The trends of the underlying business units are ultimately more important to the company than a positive quarterly figure.” Chief Executive Officer Robert Benmosche, who started in August, is seeking to halt the departure of customers and employees so he can rebuild units he needs to sell to repay loans included in AIG’s $182.3 billion bailout.

- Shanghai copper stockpiles climbed for a second week to the highest in more than five years, the Shanghai Futures Exchange said in a report on its Web site. Inventories of the metal expanded 1,440 metric tons, or 1.4 percent, to 104,275 tons this week, based on a survey of five warehouses monitored by the exchange. This is the highest level since April 2004. Stockpiles of aluminum increased for a fourth week, by 10,983 tons to 272,618 tons, the highest since at least 2003, based on a survey of 11 warehouses in Shanghai, Guangdong, Wuxi and Hangzhou, the exchange said. Zinc stockpiles expanded for a second week, by 8,311 tons to 153,847 tons, based on a survey of seven warehouses in Shanghai, Guangdong and Hangzhou, according to the report today. This is the highest level since the exchange started trading zinc futures in April 2007.

- Crude oil fell after the Labor Department reported that the U.S. unemployment rate surged to a 26-year high, undermining speculation that fuel consumption will rebound next year. Oil dropped as much as 3.2 percent. Oil dropped to $76.55 on Nov. 3, the lowest since Oct. 15. The recent low is considered by technical traders to be a support level, breaking below it would be a signal that price declines will accelerate. “Demand in the U.S. is still lagging,” said Olivier Jakob, managing director of Zug, Switzerland-based Petromatrix GmbH. “It’s difficult to find fundamental justification for these prices. The big move from $65 to $80 was due to a lot of buying from very large speculators, linked to the dollar and equities.”

- Schottenfeld Group LLC, the firm where three of the people arrested yesterday on insider-trading charges worked, said it was “deeply troubled and shocked” by the allegations against its former employees.

- Fannie Mae(FNM), the mortgage buyer seized by regulators, plans to tap emergency U.S. capital for a fourth time this year, bringing its draws of taxpayer money to $60 billion as the company sees no immediate end to its losses. Fannie Mae will seek $15 billion in Treasury Department financing after posting an $18.9 billion third-quarter net loss, according to a Securities and Exchange Commission filing late yesterday. The Washington-based company, which posted $101.6 billion in losses over the previous eight quarters, has already tapped $44.9 billion from the $200 billion emergency lifeline. “They’re going to need that $200 billion in capital, if not more, when this thing’s all said and done,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.

- Blackstone Group LP(BX), the world’s largest private-equity company, reported a third-quarter profit of $275.3 million, helped by fees from selling assets and finding acquisition targets.

- McDonald’s(MCD) Speeds Orders by Seconds to Keep Customers.

- The Florida agency that manages state investments is under a formal fraud investigation by the U.S. Securities and Exchange Commission over mortgage-backed securities it bought that defaulted in 2007, documents show. Three investment banks, JPMorgan Chase & Co., Credit Suisse Group AG and the now-defunct Lehman Brothers Holdings Inc., which sold the securities to the Florida Local Government Investment Pool, now renamed Florida Prime, also are under investigation, a July 31, 2008, SEC order says.

Wall Street Journal:

- A looming federal rule to cap the interest rates paid by weak banks could accelerate their demise and make life even harder for depositors. Banks deemed to be less than "well capitalized" by the Federal Deposit Insurance Corp. won't be allowed, starting Jan. 1, to pay more than 0.75 percentage point above the U.S. average. Just 4% of the nation's 8,185 federally insured banks weren't well-capitalized as of June 30. But weaker banks "drive up costs for the rest of the industry" by offering unusually high rates to lure deposits, FDIC Chairman Sheila Bair said when the rule was announced in May. Reining in such banks will force them to compete "with one hand tied behind their back," said Lawrence Kaplan, a lawyer with Paul, Hastings, Janofsky & Walker LLP. "This will cause deposit outflows" that could accelerate the rate of bank failures. There have been 115 so far this year. The curbs are "another nail in the coffin" of banks battered more by the real-estate meltdown than bad management, said Greg Murphy, chief executive of Royal Palm Bank of Florida, a unit of Mercantile Bancorp Inc., Quincy, Ill.

- Drug makers, looking to bolster depleted product pipelines, are increasingly using structured acquisition agreements with smaller drug developers as a way to mitigate failure risk, pay only for success and spread limited investment money. Under such agreements, large drug makers purchase a virtual call option that allows them to acquire the smaller company at a later date. Another type of deal allows the drug maker to pay less for a company but guarantee additional payments to shareholders related to short-term goals.

MarketWatch.com:
- The recent publicity for Hewlett-Packard and its new MEMS (micro-electro-mechanical system) accelerometer sent a message to Silicon Valley. The message was that MEMS technologies have indeed taken root and may be the target of the next generation of high tech venture investments after we're done with "green."

CNBC:

- General Electric(GE) and Comcast(CMCSA) are now expected to announce a deal over GE's NBC Universal unit on Nov. 16, not next week as originally thought, people familiar with the situation told CNBC.

- If a job search at your current city is going nowhere, you might want to give Kansas City or Washington, D.C. a try: they’re just two of the cities with the most job listings, according to a new study. Washington, D.C., which came in second on the list, has been generating jobs in the defense, government, law and non-profit sectors. Baltimore, Md. benefited from its proximity to the nations’ capital, showing an increase in the number of government, education and professional and business services jobs available.

Fox News:

- White House officials defended their handling of the H1N1 outbreak after an uproar over local officials' mistakes and what appeared to be their own misleading comments. "The president has done everything humanly possible to get ready for this epidemic," White House spokesman Robert Gibbs said Thursday. Gibbs' comments came just hours after reports that Wall Street giants Goldman Sachs and Citigroup got vaccines for their high-risk workers while some hospitals and clinics are still waiting for it. "If you're going to prioritize everybody who works in a contained area, maybe you ought to be at elementary schools instead of Wall Street banks," said Rep. Roy Blunt, R-Mo. The Service Employees International Union was more harsh in its criticism. "It's bad enough that Wall Street crashed our economy. But purposely endangering the health of millions of Americans during a public health crisis crosses all lines of decency," the union said in a statement.

NY Times:

- For months now, consumers have been hunkering down in an economic storm, buying only what they need to survive, like groceries, diapers, medicine — and shoes. Shoes? The American public, it would seem, cannot carry on without new shoes. Boots, booties, sneakers, pumps — for the last few months they have all been selling well as the broader economy struggles toward recovery. Shoe sales have been strong for three months now. They increased 7.9 percent in October compared with the period a year ago, according to SpendingPulse, an information service by MasterCard Advisors that estimates sales for all forms of payment, including cash, checks and credit cards. In September, sales climbed 7.8 percent year-over-year. In August, shoe sales increased 0.5 percent. Sales of shoes were $1.5 billion in October, the highest they have been in any October since at least 2006.

- Citigroup(C) is preparing to relaunch its hedge fund business operations, after months of debate on the unit’s future, The Financial Times reported. The move comes after two years of performance problems and investor unrest at the unit, Citi Alternative Investments. Now, it seems, the only problem facing Citigroup executives is what to name the unit, which has $14 billion of assets under management.

Orlando Sentinel:

- Two people are dead and six are wounded in a mass shooting at an office building in downtown Orlando. Bodies were found on the 12th and 8th floor of Legions Place, a 16-floor building north of Colonial Drive. Only the 12th floor has been cleared. The shooter has not been found, said Deputy Chief Mike Droege of the Orlando Fire Department. "The building is not secure now," he said. "It's still unfolding."

The Business Insider:

- Chinese Metal Stockpiling Is Coming To An End.

CNNMoney.com:

- Amazon.com Inc. (AMZN) has seen its market value surge by more than 30% to a record high over the past two weeks, but at least one analyst believes the market still isn't fully valuing the company's potential. Jeff Lindsay of Bernstein Research upgraded Amazon to an outperform, or buy, rating on Friday, and boosted his price target to $160--the highest target on Wall Street for the stock, which has jumped significantly since reporting its third-quarter results. That gave the stock another lift on Friday. Amazon shares were recently up 4.3% to $125.76.

Washington Post:

- Obamacare could have the unintended consequence of raising health insurance premiums and causing a decline in the number of people with insurance. Here's why: A key feature of the House and Senate health bills would prevent insurance companies from denying coverage to anyone with preexisting conditions. The new coverage would start immediately, and the premium could not reflect the individual's health condition. This well-intentioned feature would provide a strong incentive for someone who is healthy to drop his or her health insurance, saving the substantial premium costs. After all, if serious illness hit this person or a family member, he could immediately obtain coverage. As healthy individuals decline coverage in this way, insurance companies would come to have a sicker population. The higher cost of insuring that group would force insurers to raise their premiums. The higher premium level would cause others who are currently insured to drop coverage, pushing premiums even higher. The result would be a spiral of rising premiums and shrinking numbers of insured. In an attempt to prevent this, the draft legislation provides penalties for individuals who choose not to buy insurance and for employers that do not offer health insurance. But the levels of these fines are generally too low to cause a rational individual to insure.

- Congress is on the verge of enacting the largest unfunded mandate in American history. At a time when most states are struggling with rising unemployment, declining tax revenue and the worst national economic climate in 30 years, Congress is demonstrating that it is more out of touch than ever. The Democratic health "reform" bill in the Senate would require states to expand Medicaid to include all people earning up to 133 percent of the federal poverty level, or $29,327 for a family of four. House Democrats want to require expansion to 150 percent of the poverty level, or $33,075 for a family of four. Even Texas, which has a balanced budget and nearly $9 billion in its rainy-day fund, isn't prepared to absorb this type of blow. Complaints from majorities of Republican and Democratic governors alike continue to fall on deaf ears. Congress seems intent on forcing a one-size-fits-all mandate on states, some of which actually have solutions to repair their health-care systems that Washington is preventing them from trying.

IndiaWest.com:

- With college tuition bills skyrocketing, parents and students are looking under every eggshell to find savings. Rolling to the rescue is Chegg.com, which rents textbooks to students nationwide.

Politico:

- Talk about bad timing. As Washington reels from the news of 10.2 percent unemployment, the Center for Responsive Politics is out with a new report describing the wealth of members of Congress. Among the highlights: Two-hundred-and-thirty-seven members of Congress are millionaires. That’s 44 percent of the body – compared to about 1 percent of Americans overall. CRP says California Republican Rep. Darrell Issa is the richest lawmaker on Capitol Hill, with a net worth estimated at about $251 million. Next in line: Rep. Jane Harman (D-Calif.), worth about $244.7 million; Sen. Herb Kohl (D-Wis.), worth about $214.5 million; Sen. Mark Warner (D-Va.), worth about $209.7 million; and Sen. John Kerry (D-Mass.), worth about $208.8 million. All told, at least seven lawmakers have net worths greater than $100 million, according to the Center’s 2008 figures. “Many Americans probably have a sense that members of Congress aren’t hurting, even if their government salary alone is in the six figures, much more than most Americans make,” said CRP spokesman Dave Levinthal. “What we see through these figures is that many of them have riches well beyond that salary, supplemented with securities, stock holdings, property and other investments.”

- Majority Leader Steny Hoyer still expects the House to approve its sweeping health care bill Saturday, but conceded the vote could slip until Sunday or even early next week. Hoyer acknowledged House leaders were still shy of the 218 votes needed, amid flare-ups among anti-abortion Democrats and immigration advocates. Hoyer also warned of Republican delaying tactics that he said could push off plans to vote Saturday evening. He told colleagues to keep open the possibility of a vote on Sunday afternoon or the first two days of next week but said he remained optimistic that the House could vote Saturday night.

Engadget:

- Word on the grapevine is that NVIDIA(NVDA) is preparing to mount a fresh assault on the mobile front, with a successor to Tegra that moves to a dual-core ARM9 CPU and adds improved graphical performance to produce what's said to be twice the power.

AP:

- There are many unknowns about Nidal Malik Hasan, the man authorities say is responsible for the worst mass killing on a U.S. military base. Most of all, his motive. But details of his life and mindset, emerging from official sources and personal acquaintances from officials and are troubling. At least six months ago, Hasan came to the attention of law enforcement officials because of Internet postings about suicide bombings and other threats, including posts that equated suicide bombers to soldiers who throw themselves on a grenade to save the lives of their comrades. Retired Army Col. Terry Lee, who said he worked with Hasan, told Fox News that Hasan had hoped President Barack Obama would pull troops out of Afghanistan and Iraq. Lee said Hasan got into frequent arguments with others in the military who supported the wars, and had tried hard to prevent his pending deployment. Hasan attended prayers regularly when he lived outside Washington, often in his Army uniform, said Faizul Khan, a former imam at a mosque Hasan attended in Silver Spring, Md. He said Hasan was a lifelong Muslim. On a form filled out by those seeking spouses through a program at the mosque, Hasan listed his birthplace as Arlington, Va., but his nationality as Palestinian, Khan said. "I don't know why he listed Palestinian," Khan said, "He was not born in Palestine."

Reuters:

- A weekly measure of future U.S. economic growth rose to a four-week high in the latest week while its yearly growth rate edged lower, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index ticked up to 128.8 in the week to Oct. 30, from a revised 128.3 the previous week, which the group originally reported as 128.4. The index's yearly growth rate fell to a five-week low of 26.3 percent from 26.9 percent last week. ECRI has recently reported annualized economic growth at all-time highs. "While WLI growth has backed off from a record high, its continued strength promises a stronger U.S. economic recovery than most anticipate," said ECRI Managing Director Lakshman

Achuthan.

Financial Times:

- China on Friday accused the US of protectionist and biased trade policies less than a week before president Barack Obama’s first visit to Beijing. In a stinging rebuke to Washington, China’s commerce ministry promised to take measures to protect its domestic industry after the US slapped anti-dumping duties on $2.6bn of Chinese steel pipe imports. The duties are part of a growing roster of trade conflicts between the two countries, despite a high-level meeting last week in China aimed at reducing tensions. “China resolutely opposes such protectionist practices and will take steps to protect the interests of our domestic industries,” Yao Jian, ministry spokesman, said on its website. “The US should give objective consideration to the fact that the fundamental problem of the US industries in question is the fall of demand brought about by the financial crisis.” The decision by the US Commerce Department, which imposed tariffs of up to 99 per cent on some Chinese steel pipes, follows a move earlier in the week by the US, European Union and Mexico to file a formal complaint at the World Trade Organisation against Beijing’s restrictions on exports of specialised raw materials. Last month the Obama administration levied 35 per cent tariffs on tyres made in China. In response, the Chinese have opened probes into US exports of poultry on grounds of safety and into cars and car parts because of the state aid those industries have received.

Chartered Institute of Management Accoutants:

- Carbon trading rules could spark a subprime mortgage-style financial crisis, a leading environmental group has warned. According to Friends of the Earth (FoE), so-called cap and trade carbon markets have done little to reduce emissions and are now dominated by speculative traders. Sarah-Jayne Clifton, author of an FoE report on the issue, sees parallels between the way carbon is being traded and the way house loans were dealt with in the run up to the credit crunch. She said: "[Speculators are] packaging carbon credits into increasingly complex financial products similar to the 'shadow finance' around subprime mortgages which triggered the recent economic crash." The carbon trading market was valued at $126 billion (£76 billion) in 2008, but it is predicted that it could be worth as much as $3.1 trillion by 2020.

New Era:

- Namibia’s Mines Minister Joseph Iita said a potential oil-bearing substrate has been found in the Maltahohe district of the country’s eastern Hard region. A seismic survey identified a source rock believed to contain about 200 million barrels of oil, with INA Industrija Nafte DD, a Croatian oil and gas explorer, drilling for the commodity.

Il Sole 24 Ore:

- UK Chancellor of the Exchequer Alistair Darling said that $100 billion has been decided on as the amount needed to help fight global warming. “The figure $100 billion has been decided,” Darling said. “We now have to decide how much has to be spent and who has to pay.” Negotiations on a global warming treaty begin next month in Copenhagen.

Digitimes:

- US LCD TV shipments are expected to amount to eight million units in the fourth quarter of 2009, up 7.3% from 7.5 million during the same period in 2008, according to iSuppli. "iSuppli expects a strong fourth quarter and Black Friday for US LCD TV sales," said Riddhi Patel, principal analyst for iSuppli. "Although most US consumers already have purchased LCD TVs in the past, low prices now are luring them to buy new sets that have higher quality images and improved features."

Posted by: Gary / 2:18 PM

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